Supporting CFPB in banks' interest

Based on my experience in financial services, I am worried the new protection bureau will be exhausted by industry opposition and the tough work of responding to consumer complaints. I am worried it will be ground down to “just another regulator,” missing the most meaningful opportunity for proactively improving the consumer-banking industry today — an opportunity that would significantly help customers and, over time, strengthen the industry itself.

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You can illustrate the problem with three questions: 1) How do you feel about your bank? 2) Do you think about leaving it? 3) What is the likelihood of your leaving?

For many, the answers are: 1) “I don’t particularly like my bank. It frustrates me/in the downturn, it disappointed me/it can even anger me” 2) “Yes, I do sometimes daydream about leaving” and 3) “Really leave? Who has the time and energy?”

There are no more toxic relationships than the ones we feel trapped in. Bringing these answers into alignment — bringing customer satisfaction rates and attrition rates into line — should serve as the overarching road map for the bureau’s work. And this starts by reducing customer exit costs.

Exit costs are what consumers incur when leaving one bank and establishing a relationship at another. Impediments can include charges to close accounts (becoming frequent as banks look for additional revenue sources), the cost of time (changing direct deposit instructions and retyping in bill pay) and the cost of convenience (getting new account numbers).

Even the fog around whether “too big to fail” exists represents an exit cost. Though many people disapprove of it as public policy, if you believe your bank is too big to fail while another is not, you’re less likely to switch.

But perhaps the most significant exit cost is consumers’ struggle to understand bank products. While “more disclosure” is viewed as a consumer friendly rallying cry, it can be the opposite. The typical checking account agreement today can run 111 pages. Just for a checking account — and it can be multiples more for investment products.

And it’s not just the length that is the issue but the content — which is a lawyer’s delight. Disclosures can include how the bank calculates deposit rates in a leap year (seriously). But it can be a daunting chore to determine the much more relevant interest rate one’s deposits earn today, after the bank reduces them from the well-advertised rates at account opening.